Dell's Earnings Strong Amid Weak Industry

The personal computer maker reports higher first-quarter profit as it continues to take market share away from tech rivals.

Dell Computer Corp. said Thursday that strong worldwide growth led by a 40% boost in shipments of corporate server systems helped it to a healthy first-quarter profit despite continued sluggish technology spending.

The No. 1 personal computer maker earned $598 million, or 23 cents a share, on revenue of $9.5 billion in the three months ended May 2. That's up 31% from a profit of $457 million, or 17 cents, and revenue of $8.1 billion in the same period last year. The results were in line with Wall Street expectations.

For the current quarter, Dell expects earnings to rise to 24 cents a share and revenue to reach $9.7 billion.

Dell shares slipped to $31.54 in after-hours trading as analysts had hoped for a more positive outlook for the second quarter. In regular Nasdaq trading before the earnings announcement, the stock closed at $32.18, down 7 cents.

In the first quarter, Dell's worldwide shipments rose 29% year over year, even as volume for the rest of the industry sank about 1%, Chief Financial Officer Jim Schneider said. The company's 40% increase in sales of server computers, which run large-scale networks, was more than four times the average increase of other server vendors in the quarter, he added.

"What they've been able to do is offset weakness in the hardware sector by continuously gaining market share," said Nick Nilarp, a computer industry analyst at Fitch Ratings who doesn't own Dell shares.

In a conference call with analysts, Schneider cautioned that the outlook for information technology spending remains poor.

"Though overall industry demand has increased slightly over the past three quarters, we don't expect significant near-term improvement in economic or industry conditions," he said. "Regardless of what's happening in the marketplace, our strategy remains to further widen Dell's competitive advantage and profitably gain market share with an emphasis on enterprise servers and storage systems."

Dell, based in Round Rock, Texas, expects its shipments to be up 25% in the current quarter compared with 3% for the rest of the industry, Schneider said.

Dell recently became the top seller of PCs both in the U.S. and globally, overtaking rival Hewlett-Packard Co. in both categories, according to sales data from the January-March quarter.

"They're growing faster than the overall industry," Nilarp said.

In March, Dell jumped into the printer business, HP's biggest profit center. "Our printer business is off to a very good start," Chief Operating Officer Kevin Rollins said. "We've seen it grow at about two times the pace that we thought it would going out of the blocks. We're pretty much convinced that this can be a great market for Dell."